12-12-2012

Cyprus International Business Company (CIBC) & Taxation Guide

Authors

  • Andreas Afxentiou Georghiou, Advocate, Legal Consultant
    Chairman - CEO A.A. Georghiou LLC

What is the CIBC?

The CIBC is the legal entity whose beneficial owner is a foreigner and which is being used for his/her local and international business activities and investments.

Is the CIBC an offshore company?

No, definitely not. As Cyprus is a full member of the EU, the CIBC is a prestigious European company acceptable worldwide. On the contrary, the offshore companies are not allowed to make business or investments in the country of their jurisdiction and their corporate tax rate is zero.

Who is considered as a non – tax resident of the Republic of Cyprus?

As non – tax resident of the Republic of Cyprus is considered the individual who is present in the Republic for a period less than 183 days in a tax year, while a tax resident is considered the individual who is present in the Republic for a period exceeding 183 days in a tax year.

What income tax rate is the CIBC subject to in Cyprus?

The corporate income tax rate in Cyprus is 10%, the minimum in the EU, on the net – net profits.

Are there any exemptions from the corporate income tax?

Yes, there are the following exemptions:

  • the whole amount of the interest income, exempt the interest income which is arising from the ordinary course of business, and the interest which is closely connected with the carrying on of the business, and interest earned by open – ended or closed – ended collective investment schemes, as they are not considered as interest but as trading profit;
  • the whole amount from the dividend income;
  • the whole amount of the profit from the disposal of securities, including the redemption of units or other ownership interest in an open – ended or close – ended collective investment scheme;
  • the whole amount of the profits from a permanent establishment maintained outside the Republic of Cyprus, subject to certain conditions; and
  • the whole amount of the rent of preserved building, subject to certain conditions.

Apart from the aforesaid exemptions from the corporate income tax, are there any deductible expenses? What do you mean by 10% on the net – net profits?

By net – net profit we mean that all the expenses which are being incurred wholly and exclusively for the production of the income are deductible. Such deductible expenses include the following:

  • the whole interest incurred for the acquisition of a fixed asset used in the business;
  • the whole amount of the donations to approved charity organizations;
  • up to €700,00, €1.100,00 or €1.200,00 per square meter, depending on the size of the building, of the expenditure for the maintainance of buildings under preservation order, subject to certain conditions; and
  • amounts up to 1% of the gross income or €17.086,00, whichever is the lower, of the business entertainment expenses including hospitality expenses of any kind which are incurred for the business.

Which expenses are not deductible from the corporate income?

The expenses which are not deductible from the corporate income are the following:

  • the whole amount of the expenses of the private motor vehicles;
  • the whole amount of the professional tax;
  • the whole amount of the interest which is payable or is deemed to be payable in connection with the acquisition of a private motor vehicle, irrespective of whether it is being used in the business or not, or other asset not being used in the business. (This restriction is being lifted after 7 years from the date of the purchase of the relevant asset);
  • the whole amount of the immovable property tax;
  • the whole amount of the expenditure which is not supported by invoices and/or receipts or other supporting documentation as applicable and/or as may be required; and
  • the whole amount of the wages and salaries related to services being offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, Pension Fund and Provident Fund which have not been paid in the year they were due. Such wages and salaries will be tax deductible provided that the aforesaid contributions, plus the interest and penalties, if any, will be paid in full within 2 years from the due date.

Can the CIBC carry forward its tax losses?

Yes, the CIBC has the right to carry forward and offset tax losses against taxable income for an indefinite period of time.

Does Cypriot tax law provide for group tax relief?

Yes, it provides for group tax relief. Thus, losses for the current year can be surrendered only by a group company to another group company. It is provided that the group relief will be given provided that both CIBCs are members of the same group during the whole tax year.

When two CIBCs are considered to be part of a group for relief purposes?

If the one CIBC is a 75% subsidiary of the other, or both CIBCs are 75% subsidiaries of a third company.

Can losses arising from a Permanent Establishment (PE) of the CIBC out of the Republic of Cyprus be offset against profits arising in the Republic?

Yes, they can. However, when a profit arises from such a PE, an amount equal to the losses that have been utilised in the past against profits arising in the Republic of Cyprus will be included in the taxable income.

How does a CIBC acquire a PE outside the Republic of Cyprus?

A CIBC is considered to have a PE outside the Republic of Cyprus, if it is engaged in the following activities in another country, subject to the provisions of the applicable double tax treaty, if any:

  • operating a shop, agency, branch, office, warehouse, factory or work shop;
  • maintaining of an installation for the purpose of exploiting natural resources;
  • processing raw materials or agricultural products;
  • carrying out business or rendering services through a dependent agent authorised to negotiate and conclude agreements in its name; and
  • maintaining a stock of merchandise out of which orders are executed for its account.

Are the CIBCs allowed credit for taxes paid outside the Republic of Cyprus?

Yes, any tax paid abroad on income subject to tax will be credited against any income tax payable in the Republic on such income, irrespective of the existence of a double tax treaty or not.

What is the special defence tax?

I think that there is a misunderstanding. There is no “special defence tax” in the Republic of Cyprus. There is the special defence contribution, not tax, which is not imposed to CIBCs. It is imposed only to the Cypriot tax residents and not to the non residents.

Does Cypriot income tax law provided for the advance payment of taxes?

Yes, all legal entities in the Republic of Cyprus are required to assess provisionally the tax of the current year which is payable in the next year, and pay the so assessed provisional tax in three installments: the first installment on the 1st of August of each year, along with the submission of the provisional tax assessment, the second installment on the 30th of September of each year, and the third installment on the 31st of December of each year.

What is the capital gains tax in the Republic of Cyprus? 

The capital gains tax is 20% on gains from disposal of immovable property situated in the Republic of Cyprus, including shares of companies not listed on a recognised Stock Exchange which own immovable property in the Republic of Cyprus. No capital gains tax is being imposed on gains from the disposal of immovable property situated outside the Republic of Cyprus, or from the disposal of shares of companies listed on the Cyprus Stock Exchange or on any other recognized Stock Exchange.

What is the estate duty in the Republic of Cyprus?

No estate duty is levied in relation to any deceased person whatsoever in the Republic of Cyprus.

What type of CIBC is the most famous and for what reasons?

Cyprus is an attractive holding company and tax effective repatriation of profits jurisdiction and the CIBCs are being used mainly for the holding of the participations and investments of the businesspersons and investors worldwide.

Thus, the most famous is the holding and investment CIBC because of its important tax advantages which are the following:

  • Full exemption from tax on dividend income received from subsidiaries and overseas participations, provided that the holding CIBC holds a minimum of 1% of the share capital of the subsidiary.
  • No withholding tax is imposed on outgoing dividends and other profit distributions paid by a CIBC to non resident shareholders, including both the individuals and the corporations, irrespective of the country of residence.
  • Substantially reduced withholding tax on the incoming dividends remitted to the CIBC from the subsidiary’s jurisdiction due to the extensive network of the Double Tax Treaties between Cyprus and 44 countries. However, dividends between associated companies which are both based in the EU are paid without any withholding tax, according to the EU Parent – Subsidiary Directive.
  • Full exemption from income on the disposal of securities and liquidations of participations.
  • Full exemption from capital gains tax that arise from the disposal if immovable property situated outside Cyprus or shares in companies owned immovable property situated outside Cyprus.
GREEK LAW DIGEST Web Portal of the Republic of Cyprus CYPRUS INVEST PROMOTION AGENCY
ΝΟΜΙΚΗ ΒΙΒΛΙΟΘΗΚΗ ΚΥΠΡΙΑΚΟ ΕΜΠΟΡΙΚΟ ΚΑΙ ΒΙΟΜΗΧΑΝΙΚΟ ΕΠΙΜΕΛΗΤΗΡΙΟ CYPRUS BAR ASSOCIATION
     

 

Login

Log in to your account or